Chairman’s Joint and Several Liability for the Tax Obligations of the Company He Represents

1. Background
Through administrative decisions issued in December 2006, the Argentine Tax Authority (hereinafter the "AFIP"), assessed the tax liability of Carnes Santa María S.A. (the "Principal Debtor") in Value Added Tax from July 2002 to August 2004 periods and in Income Tax for the fiscal year 2003, and claimed payment of the resulting sums plus interest and penalties. In March 2007, the Principal Debtor appealed the assessments before the National Tax Court (the “Tax Court”).  It should be recalled that Section 167 of the Tax Procedural Law (the “TPL”) provides that the filing of the appeal before the Tax Court suspends the deadline for the payments claimed in an assessment made by the AFIP.
At the same time, the AFIP issued a new administrative decision pursuant to which it assessed the tax liability of Raúl José Bozzano (the “Joint and Several Guarantor") as Chairman of Carnes Santa Maria S.A. and, as such, joint and several guarantor in terms of Section 8, Subsection a) of the TPL.
That ruling provides that the people set forth in Section 6, Subsection d) of the TPL –chairmen, managers and other company representatives – are jointly and severally liable for the tax obligations of companies they represent, if those companies do not make the payments claimed in the assessment of AFIP within the 15–day deadline provided by Section 17 of the TPL. The mentioned representatives may be exempted from their joint and several liabilities in relation to the companies they represented if they can prove that those companies not made it possible for them to fulfil their fiscal duties in a proper and timely manner.
In this context, the Joint and Several Guarantor appealed the assessment before the Tax Court and, in addition to criticizing certain matters related to the substance of the assessment, he claimed that a final decision in relation to the assessments made to the Principal Debtor, which established the debts of Value Added Tax and Income Tax, has not been issued; therefore, the AFIP had not fulfilled requirements provided by the TPL in order to assess the obligation of the joint and several guarantor.
On the other hand, the AFIP asserted that Section 8, Subsection a) of the TPL does not require a final decision in relation with the assessment of the Principal Debtor in order to assess the obligation of the Joint and Several Guarantor, and that the sole failure of the Company to make the payment claimed in the assessment, allows to extend the liability to the joint and several guarantor.
As a result, the matter to be decided in this case is whether the AFIP is entitled to assess the obligation of the Joint and Several Guarantor even when there is not yet a final decision in relation with the assessment made to the Principal Debtor.

2 .The Tax Court’s decision
Room B of the Tax Court referred to its own precedents (1) in which it had asserted that in order to conclude that the Principal Debtor has failed to comply with the payment claimed by the AFIP, the debt should be turn into a final decision, and in that understanding, the appeal filed before the Tax Court by the Principal Debtor, prevent the possibility of considering the payment claimed as unfulfilled.
In addition, the Tax Court asserted that for a breach of a fiscal duty to exist, first a final decision must establish if that fiscal duty does exist.
As a result, the Tax Court stated the invalidity of the administrative decision that extended the liability to the Joint and Several Guarantor. The AFIP filed an appeal against the sentence before the Federal Court of Appeals in Administrative Matters (the “Court of Appeals”).

3 .The decision of the Court of Appeals
Tribunal III of the Court of Appeals held that the joint and several liability provided by the TPL is not about a single obligation on several debtors and which fulfillment the AFIP may require from any of them, but a principal obligation and an accessory obligation so that the AFIP can only claim the payment of the obligation by following an established order; chairmen, managers and other representatives of companies are liable not as principal debtors of the payment claimed by the AFIP but as a person responsible for a third party debt. Accordingly, the Court of Appeals stated that joint and several liability does not modify the subsidiary role of the obligation under consideration.
The Court of Appeals concluded that, in this case, the AFIP could not initiate the procedure to obtain the payment of the tax obligation by the Joint and Several Guarantor, because the Principal Debtor had appealed the administrative decisions pursuant to which the AFIP had assessed his tax liability, before the Tax Court. Thus, those decisions were not final and there is no failure of the Principal Debtor to make the payment. For this reason, the Court of Appeals confirmed the decision of the Tax Court. The AFIP filed an ordinary appeal before the Argentine Supreme Court (the "Supreme Court").

4. The Supreme Court’s Decision
Finally, the Supreme Court decided in relation with the case on February 11, 2014. By way of introduction, the Supreme Court referred to the manner in which Section 8, Subsection a) of the TPL should be understood. In this regard, it asserted that when a law is clear and does not require an interpretive effort, it should be applied directly, because the primary source of interpretation of the law is to be literal.
Accordingly, the Supreme Court pointed out that Section 8, Subsection a) of the TPL only requires for its application that the AFIP has claimed the payment and that the 15–day deadline has passed without the compliance of the Principal Debtor. In this regard, the Supreme Court asserted that when interpreting Section 8, Subsection a) of the TPL it was not necessary to add a requirement –that is, that the assessment issued by the AFIP was a final decision – which is not provided by that rule, especially when the TPL preserves the right to a defense of the Joint and Several Guarantor. In this understanding, the TPL establishes that the AFIP, in order to extend the liability to chairmen, managers and other representatives of companies, must follow the same procedure provided to assess the tax obligation of the Principal Debtor, which, in addition, implies that the respective decision may be appealed before the Tax Court, allowing the Joint and Several Guarantor to formulate his defense.
Moreover, the Supreme Court considered that the requirements provided for Section 8, Subsection a) of the TPL was met in the case, because the administrative decision which assessed the tax obligation of Principal Debtor and claimed for the payment of the taxes was notified in February 2007, while the assessment of the tax obligation of the Joint and Several Guarantor was issued in November 2008.
Consequently, the Supreme Court revoked the appealed decision and established that legal expenses must be paid by the Joint and Several Guarantor.
 
 


1.  In re “Club Atlético Adelante Asoc. Civil y Deportiva”, decision issued on December 26, 1998 and “Georgalos Hnos. S.A.I.C.A.”, decision issued on December 30, 2003.